Congress returns from its summer recess with little chance of progress on its tax priorities.

Dear Readers Who Follow Washington Developments:

Congress is back from its August recess. But the environment it faces will not encourage a lot of progress on its tax priorities or on the taxes and other matters that directly affect our practices.

As Capital Letter Number 3 reported, while the Senate was considering the fiscal 2008 budget resolution (S. Con. Res. 21) in March, it approved by a 97-1 vote an amendment to use a projected budget surplus in 2012 to pay for various priorities in earlier years. When Finance CommitteeChairman Max Baucus (D-MT) explained this amendment, the first priority he cited was improving children’s health care coverage under the State Children’s Health Insurance Program (SCHIP). Although this amendment was not included in the final budget resolution that Congress approved in May, it is clear what Senator Baucus viewed as a priority.
The SCHIP program expires this September 30. Despite the priority it had early in the year, Congress hasn’t finished work on its renewal yet. (Meanwhile, President Bush considers the current congressional plan to be too expansive and has threatened to veto it anyway).

As Capital Letter Number 2 reported, House Ways and Means CommitteeChairman Rangel (D-NY) is committed to individual alternative minimum tax relief as a priority. That relief has not been provided and does not seem even to be close, even though 2007 tax return forms and instructions will be printed soon and thousands of middle-class taxpayers will be added to the AMT rolls this year if

How is it that significant priorities of the congressional tax-writing leadership are not realized?

One explanation is that these priorities are hard to achieve under a fiscal discipline, especially in the House of Representatives, that requires effective “pay-fors.”
The war in Iraq and the political posturing that surrounds it immediately come to mind, of course. The partisan bitterness and suspicion that Iraq has created – or, probably more accurately, aggravated – has been judged by many to be the worst in a generation or longer. But in the Senate Finance CommitteeChairman Baucus and Ranking Minority Member Chuck Grassley (R-IA) have a long history of swapping leadership roles and of working together in a bipartisan way, and in the House Ways and Means Committee Chairman Rangel and Ranking Minority Member Jim McCrery (R-LA), who are new to their roles, have proven to be friends who work together.

Ultimately the explanation that best withstands scrutiny may be the same phenomenon that we all face from time to time when we look at our desks – there are just too many things to do! With regard to Congress, Iraq and its radiations come to mind again, of course. The Justice Department. Campaign finance accusations and anything else affecting the presidential campaign. Bridge repairs and coal mine safety, given urgency by the disasters of early August – not heavy on the congressional calendar yet, but certain to influence discussions of fiscal priorities.

This is not to say that the tax-writing committees have not been busy. Tax discussions, proposals, hearings, studies, reports, and mark-ups are in the news all the time. The problem is that the attention to taxes is almost exclusively driven by high-profile transactional contexts, such as energy legislation, transportation, hedge funds, conservation and the environment, and, most recently, home mortgage defaults and foreclosures. Even the patenting of tax-saving techniques has been the subject of a level of congressional attention that is surprising to some (and it will likely come up again in future Capital Letters). Congress may wrestle with these initiatives, and, while many of them seem bogged down, some may even join the SCHIP renewal in emerging from the legislative process.

Despite the dialogue earlier this year about the estate tax in the essentially academic context of the budget resolution (see Capital Letter Number 3 and Capital Letter No. 4), right now there is no transactional or political crisis likely to move the estate tax up on the congressional to-do list. To be sure, in the September 5 Republican presidential debate Governor Romney said we should “kill the death tax once and for all,” but it attracted no comment or other follow-up. Governor Romney, of course, is still a couple steps away from the White House, and, besides, Governor Reagan and Governor Bush said the same things in their campaigns. On the Democratic side, it is easy to say that “the Bush tax cuts” (most prominently the 15% income tax rate on dividends and capital gains through 2010) should be rolled back, but it is impossible to detect or conclude that there is really much interest in effectively raising estate taxes after 2008 or 2009. Anyway, none of the Democratic candidates will be President this year or next year either.

The fact remains that there is nothing happening today to push the estate tax into the spotlight.